Adaptive and relative efficiency of stock markets from Southeastern Europe: a wavelet approach

Adaptive and relative market efficiency of seven Southeast European stock exchanges is investigated for a period of 11 years. A wavelet-based technique is utilized to the daily return series of the major stock indices in order to track the evolution of the LRD parameter, since its value is closely related to the degree of returns predictability. A major finding is that a sustainable degree of predictability is present for the stock markets of Bulgaria and Serbia, which is not diminishing over time. The Croatian and Russian markets are characterized by diminishing level of predictability, while the Greek and the Romanian markets are eventually converging to efficient functioning. The Turkish stock exchange is found to be highly efficient throughout the period of investigation. For the purpose of measuring the relative efficiency of the investigated markets, the obtained results are compared to those delivered for six developed stock exchanges, and significant differences in their informational efficiency patterns are discovered. These findings have important implications for risk diversification and portfolio management.